Why Alibaba only lost $ 100 billion in market value

What happened

Stocks Alibaba 04.30 NYSE: BABA he dived today after the Chinese government said it would open an antitrust investigation against the technology giant. The news comes just weeks after Beijing blocked the IPO of Ant Group, a subsidiary of Alibaba Fintech, an additional sign that the ruling Chinese Communist Party (CCP) wants to thwart the power of Alibaba founder Jack Ma.

In a shortened session, Alibaba shares closed 13.4%, erasing approximately $ 100 billion from the market boundary.

Image source: Alibaba.

So what

In a brief statement, China’s antitrust body, the State Administration of Market Regulation, announced that it had opened an investigation against Alibaba for monopolistic behavior, citing practices such as preventing the sale of its suppliers on other platforms.

Jack Ma has been under the spotlight of regulators since October, when he made several remarks that angered the CCP, mocking them for being too risk-averse and criticizing the financial regulatory system in other ways. Chinese state media responded with their own attack on Mau and his speech, and shortly afterwards blocked the Ant Financial IPO, which was supposed to be the largest ever in the world.

The CCP, which has a certain level of power unlike any institution in the Western world, disliked Ma’s claim to power and his criticism of the government, and seems to react by squeezing Ma’s businesses.

What now

It is unclear how the investigation will proceed, and the Chinese government should be careful when crossing borders, as this could frighten Western investors and harm China’s own hegemonic ambitions. However, the CCP’s degree of control and unpredictable behavior is one of the reasons why Chinese stocks tend to trade at a discount to their U.S. counterparts.

For example, Alibaba now trades at a price-to-earnings ratio of just 24, which is significantly less than S&P 500, although the company is as dominant as any American technology giant, with strong positions in e-commerce, cloud computing and digital payments, among others. Alibaba also recorded revenue growth of 30% in the last quarter, and its markets, including Tmall and Taobao, generate a gross volume of goods of more than $ 1 trillion a year, more than any other e-commerce business in the world.

Based on Alibaba’s basics, the sale may seem like an opportunity to buy, but a dark cloud is likely to hang over the shares until the investigation is resolved.

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